VAT

Dynamics 365 Business Central – How to post Purchase Invoices for Lease Cars using the non-deductible VAT feature

Gavin WhittakerLeave a comment

Introduction

If you lease a car through your business, you can only reclaim 50% of the input VAT on the lease cost unless you can demonstrate that it is used exclusively for business purposes. (i.e. a pool car or company van)

Therefore even though we still have to post the Purchase invoice at its full amount, including VAT, we can only reclaim a portion of that VAT. As a result, when posting the Purchase invoice we need a method to expense the amount of VAT we cant reclaim, while ensuring that only the reclaimable portion is included in the VAT Return.

In this post I’ll go through how you can configure VAT in Business Central to accommodate this using the “Non-Deductible VAT” feature.

VAT Setup

The first thing to do is to switch on the “Non-Deductible” feature via the “VAT Setup” page

Enabling this gives more features in the “VAT Posting Setup” page, which we will utilise and look at in more detail later.

VAT Product Posting Group

The next step is to create a new “VAT Product Posting Group” that we’ll select when posting our lease car Purchase Invoices.

In this case I’ll call is VAT20LEASE.

Assign VAT Product Posting Group to GL Code

Next I’ll assign this new VAT Product Posting Group to my Lease Vehicles GL code as per below:

This will now be selected by default when I use this GL code directly in a Purchase Invoice.

VAT Posting Setup

We’ll now add the new VAT Product Posting Group into our VAT Posting Setup.

Since we have switched on “Enable Non-deductible VAT” we have extra features we can utilise for this new VAT Business/Product combination as per below:

If we break this down we can see the following:

Firstly, now we have enabled the “Non-Deductible VAT” feature we have three new options. These are shown above is point 3, 4 and 5. (click to enlarge the image)

In point 3 we have the option to “Allow” non-deductible VAT on this VAT combination. If this is set to “Allow” you can specify the non-deductible percentage, which we have set to 50%. Finally in point 4 you can either select a GL code to post the non-deductible VAT, such as an “Irrecoverable VAT” GL code, or you can leave it blank, so the expense is posted to the same expense code used on the Invoice.

Post a Purchase Invoice

Now we have this all configured we’ll now create a Purchase Invoice for a lease car for £1000.00+£200.00 VAT, which totals £1200.00.

Remember, although we still have to pay £1200.00, we can only reclaim 50% of the VAT.

When entering the Purchase Invoice it shows as per below

If we click “Invoice > Statistics” we can see the full VAT amount of £200.00 but we also see that £100.00 is “Non-Deductible”

The VAT Entries for this Purchase Invoice also only record £100.00 to be reclaimed

And finally the GL Entries only show £100.00 hitting our VAT GL account, with the other £100.00 hitting the Lease car expense

Remember we could have specified an “Irrecoverable VAT” code in the “VAT Posting Setup” for this if we preferred.

VAT Statement

The final piece of the jigsaw to ensure we add the new combination on the VAT Statement so its included in our calculations and submission.

I therefore included it in the calculations so its picked up in the relevant boxes as per below

This may differ from your VAT statement as its taken from my demo and then I added the new VAT Product Posting Group

Conclusion

Previously we’d have had to manage this manually using journals however we can now utilise the “Non-Deductible” features to assist when posting Purchase Invoices for Lease Cars in Business Central.

Thanks for reading!

Dynamics 365 Business Central – How to manage different VAT rates when posting Sales Prepayment Invoices

Gavin WhittakerLeave a comment

Introduction

In Business Central you can post a Sales Prepayment Invoice if you want to raise an invoice before shipping the goods or supplying a service.

Its therefore used when you require your customers to pay up front or pay a deposit before you supply the goods and services.

For this to work you specify a Sales Prepayment General Ledger code for the posting group combination in “General Posting Setup”. (this tends to be a Balance Sheet Liability account). The system then posts to this General Ledger code when you raise the Sales Prepayment Invoice. (incidentally this entry is reversed when you post the Sales Invoice and the relevant Income code is updated)

However this poses a problem if the goods or services you sell have different VAT rates, as when you raise the Sales Prepayment Invoice it uses the “VAT Product Posting Group” on the Sales Prepayment GL Account for VAT calculation purposes.

In this post I’ll go through the issue in more detail and also the solution I’ve used to resolve this.

Sales Prepayment Setup

Please note this doesn’t cover all of the Sales Prepayment Setup. You can find that in the Microsoft Learn site here

First I’ll create a General Ledger Code which we’ll then select in the “General Posting Setup” as the Sales Prepayment Account. When setting up the General Ledger Code, you specify the relevant posting groups, including the VAT Posting Groups. As the vast majority of the time it will be using standard VAT this is the posting group I’ll select as per below:

I’ll then select this in my “General Posting Setup” as the “Sales Prepayment Account” for all my posting combinations

I’ll now raise a Sales Order with 100% prepayment with Standard VAT and this works fine:

However what if I’m selling another line with a Zero VAT Product Posting Group:

When I try creating the Sales Prepayment Invoice I now get the message “The Prepayment account is assigned to a VAT Product Posting Group where the VAT percentage is not equal to zero….” as shown below:

I’m getting this error because there is now a mismatch between the VAT Product Posting Group we assigned to the Sales Prepayment General Ledger Account, and the VAT Product Posting Group on the Sales Line.

Incidentally you would also get this error message if you had one single line item on the Sales Invoice with a VAT Product Posting Group of ZERO.

A Workaround

You can workaround this error by creating a second Sales Prepayment General Account and assigning it a VAT Product Posting Group of ZERO and then tweaking the General Posting Setup as I’ll demonstrate below.

I’ll therefore create another Sales Prepayment General Ledger Code with a VAT Product Posting Group of ZERO

Next I create two new General Product Posting Groups called PREPAY0 and PREPAY20 and then set their combinations in the General Posting Setup page up as per below:

Now when I raise the Sales Order I just need to select the correct “General Product Posting Groups” for each line so they use the relevant Sales Prepayment Account.

I’ll therefore select “PREPAY20” for the line that has VAT and PREPAY0 for the line that has ZERO VAT.

When I try and post this it works, and when I look at the General Ledger Entries I can see both my Sales Prepayment General Ledger accounts are being used.

Conclusion

Although I’ve had to create an additional Sales Prepayment Account this does provide a method of posting Sales Prepayment Invoices for items with differing VAT Amounts. (I could also post a journal at month end to transfer the balance from account to another using a journal)

It also solves the need to have to change the “VAT Product Posting Group” on a Sales Prepayment General Ledger account if you post Sales Prepayment invoices with different VAT amounts.

Thanks for reading!